Retirement fund body EPFO today announced a hike in interest rate on Provident Fund deposits to 8.75 per cent for 2013-14, a decision that will benefit over 5 crore subscribers.

The interest rate on PF deposits in the previous financial year was from 8.5 per cent.

The decision to raise interest rate was taken by the Central Board of Trustees (CBT), the apex decision making body of the Employees' Provident Fund Organisaton (EPFO).

"We have decided to recommend to the government 8.75 per cent rate of interest for 2013-14 to its subscribers," Labour Minister Oscar Fernandes, who chaired the CBT meeting, told reporters here.

The EPFO's recommendations would now be vetted by the Finance Ministry. Once the ministry gives its concurrence to the decision, the interest would be credited into the accounts of subscribers.

Elaborating on the decision to raise PF rate, EPFO's Central Provident Fund Commission K K Jalan said: "We have estimated an income of Rs 25,048.55 crore for 2013-14. EPFO would require 25,005.41 crore for providing 8.75 pre cent rate of interest for this fiscal and leave a surplus of Rs 43.14 crore."

EPFO also announced a 20 per cent increase on Employees' Deposit Linked Insurance Scheme, 1976 as an interim measure. Under this scheme, the family of a worker can get a maximum sum assured of Rs 1,30,000 in case of his/her demise during the service period. After 20 per cent raise, the maximum amount would now be Rs 1,56,000.

These charges for non-functional firms having no contributory members is also increased to Rs 75 and Rs 25 per month respectively for the two schemes.

EPFO has a corpus of around Rs five lakh crore.

When asked about EPFO's plans to improve investments, particularly Special Depositor Scheme (SDS) which earns just 8 per cent rate of return, Jalan said: "We will definitely take out money from SDS and invest in high yielding instruments. We will soon work on a proposal."

On the Labour Minister's idea of deducing extra 10 per cent on basic wages by EPFO for providing housing to workers, the Central Provident Fund Commissioner said: "We will definitely work on the proposal. He has a lot experience."